Hospital cost control in Norway: a decade's experience with prospective payment

Area of Science:

• Health economics
• Hospital management
• Public health policy

Background:

• Norway's 1972-1980 prospective payment system saw high annual hospital cost increases (15.8%).
• Similarities in health expenditure growth (2.2% in Norway vs. 2.4% in US) and public demands for services existed.
• Both countries faced challenges in resource distribution and technology dispersion.

Purpose of the Study:

• To analyze Norway's hospital payment systems and their impact on cost control.
• To compare Norway's prospective payment and population-based systems with the US Medicare Diagnostic Related Groups (DRGs).
• To identify effective strategies for controlling hospital costs and ensuring equitable resource distribution.

Main Methods:

• Comparative analysis of Norway's prospective payment system (1972-1980) and its subsequent population-based system (from 1980).
• Examination of hospital cost growth, health expenditure trends, and resource allocation in Norway and the United States.
• Evaluation of the incentives and limitations of different payment methodologies, including DRGs.

Main Results:

• Norway's initial prospective payment system did not effectively control hospital costs, with annual increases of 15.8%.
• The shift to a population-based, morbidity-adjusted formula in 1980 offered a more equitable resource distribution approach.
• The US Medicare DRG system is limited, affecting only Medicare payments and not capital costs or admission variations, potentially shifting costs to other payers.

Conclusions:

• Prospective payment alone is not a solution for controlling hospital costs.
• Norway's population-based methodology provides incentives for cost control and equitable resource distribution.
• Population-based adjustments can enhance DRG systems to address limitations in cost and admission variations.